Legal & Regulatory

Setting up a Wholly Foreign-Owned Subsidiary Company in India

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By Dezan Shira & Associates

Under Indian law, foreign investors are able to establish wholly owned subsidiary companies (WOS) in the form of private limited companies if they operate in sectors that permit 100 percent foreign direct investment (FDI). With India’s recent loosening of FDI caps, companies are now also able to establish WOS in the telecom services and asset reconstruction sectors. Establishing a private limited company can be a lengthy and complicated process involving multiple steps.

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What Indo-U.S. Bilateral APAs Entail For U.S. Investors

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By Shilpa Goel 
Business Advisory Associate, Dezan Shira & Associates 

India’s decision to negotiate bilateral advance pricing agreements (APAs) with the U.S. is a welcome move. Prospectively, negotiations will increase certainty and uniformity in the application of India’s transfer pricing laws to related-party transactions carried out by U.S. multinational corporations (MNCs). In this article, we discuss some of the important caveats that MNCs must watch out for in complying with India’s nascent APAs.

Introduced in 2012, India’s APA regime provides for a framework to determine, in advance, the arm’s length pricing of an international transaction. If concluded as expected, APAs will bring about a reduced compliance cost to companies due primarily to elimination of transfer pricing selection and audit and a decreased burden of maintaining transfer pricing documentation. Businesses must, however, proceed with the APA application process with due care and diligence, especially on the following three fronts.

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India Regulatory Brief: India Ease of Doing Business Rankings, States Seek Mining Ordinance Concessions

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Government to Rank States on Ease of Doing Business

The Indian government is set to begin ranking states on the ease of doing business. The initiative will encourage state relaxation of dated legislation and establish a means for the federal government to identify poor performers.

The states will be ranked on the basis of: setting up and exiting business, registration of property, labor compliance, infrastructure availability, finance and tax issues and inspection reforms.

The move is in line with the Modi government’s competitive federalism’ agenda and will facilitative favorable reform for foreign investors.

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India Regulatory Brief: Tax Exemptions for Startups, Further E-Commerce Regulations

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Center Plans Tax Exemptions for Startups

The Indian government is devising an incentive scheme for startups which proposes exemptions from service tax and excise duties.

If passed, certified startups registered under the department of science and technology (DST) will be eligible for tax exemptions until their revenues reach a certain threshold. In addition, certified startups will receive grants of up to US$1.6 million (Rs 10 crore) from the DST.

The reform push is good news for investors looking to join India’s expanding tech and startup industry. Last year venture capitalists nearly doubled their investment in the country, injecting a record breaking US$2.1 billion into Indian startups.

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India Regulatory Brief: New Medical Device Regulations for 2015, GDP Growth Revised

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India’s Medical Devices Regulations Set to Change in 2015

India’s health ministry has released a proposed draft of the Drugs and Cosmetics (Amendment) Bill. Set to be submitted to parliament for approval later this year, the new legislation would align India’s regulations with the European Medical Device Directives.

In addition to updated definitions, the new legislation would simplify import procedures and affect change across many areas including: manufacturing, sales, distribution and clinical trial of medical devices. Furthermore, a Medical Devices Technical Advisory Board would be established to manage any technical and administrative issues that may arise.

The draft has been publicly disclosed for comment by stakeholders from industry, government, and the general public.

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India Regulatory Brief: India Eases Foreign Exchange Management Laws, India/Switzerland to Exchange Tax Info

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Switzerland to Exchange Tax Info with India

On January 22, the Swiss Government agreed to cooperate with plans for the exchange of tax information with India. The discussions follow India’s pursuit to recover black money stashed by its citizens in foreign jurisdictions.

The partnership was established during talks between Indian Finance Minister Arun Jaitley and his Swiss counterpart Eveline Widmer-Schlumpf at the World Economic Forum in Davos and is a positive step in the bid to quash India’s expanding black money problem.

In 2012, an estimated US$94.76 billion in illicit wealth poured out of India, making the cumulative total outflow US$439.59 billion since 2003, according to Global Financial Integrity.

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A Guide to India’s Transfer Pricing Law, Part 2: Should BEPS be on India’s Radar?

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By Shilpa Goel – Business Advisory Associate, Dezan Shira & Associates 

In the first of this two part article, we outlined what businesses must do to comply with India’s transfer pricing laws, while stressing the key reforms introduced by the new government to bring certainty to the domestic tax system. Here, we discuss if and how India should respond to the Group of Twenty (G-20) nations’ ongoing work on base erosion and profit shifting (BEPS).

In July 2013, at the behest of the G-20 Finance Ministers, the Organization for Economic Co-operation and Development kicked off the BEPS project to address the erosion of tax bases by large groups. The BEPS project, which comprises 15 Action Items, calls upon world governments to implement change in domestic tax policies to prevent artificial segregation of taxable income from business activities that generate it. The BEPS project inter alia focuses on:

  • Tax challenges of the digital economy;
  • Effects of hybrid mismatch arrangements;
  • Controlled foreign corporation rules;
  • Interest payments and financial payments;
  • Avoidance of permanent establishment status;
  • Transfer pricing documentation; and
  • Dispute resolution.

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Land Acquisition May Become Easier in India, but Risks Remain

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 By Adam Pitman, International Business Advisory Manager, Dezan Shira & Associates 

When foreign companies announce plans to invest in India, they are often inundated with incentives from different levels of Indian government. However, outside the halls of government, officials are constrained in what they can feasibly deliver. In many cases, officials trip on their own shoelaces – projects worth billions of US dollars are currently stalled because of land acquisition regulations.

In recent weeks, the government announced two initiatives that will make acquiring and repurposing land easier for many businesses. Reforms to land acquisition and environmental regulations compliment the government’s ‘Make in India’ initiative, which is designed to improve conditions for manufacturers, but will also improve international perception of India’s investment climate.

The government’s initiatives will alter pre-investment considerations for many businesses; some burdensome aspects of land acquisition and use will be removed for projects in critical development areas. The reforms will also change the nature of on-going land disputes. However, land acquisition and environmental regulations remain sensitive issues; market entry and business advisory services are still mission-critical for foreign companies.

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